Surviving the Squeeze.

The sobering realities of dental insurance don't have to drain laboratories

By Daniel McCann

Just last year, Tom Wiand, owner of Wiand Dental Laboratory in Scottsdale, Arizona, was confident his business model shielded him from the types of price pressures—cost-cutting clients, offshoring practices, and high-volume domestic dental laboratories—that might have rattled, or even upended, some of his competitors.

For more than two decades, Wiand had honed a specialty for delivering complex removable dental prosthetic cases to a loyal and growing clientele. Dentists in and out of state relied on his expertise and quality work, he says.

When Wiand heard in 2011 that Delta Dental of Washington had imposed a 15% reimbursement cut on member-dentists, who, in turn, squeezed laboratories for comparable cost reductions or took their business elsewhere, he couldn’t imagine something similar happening to him.

Then, in April 2014, Delta Dental of Arizona (DDA) notified dentists it was eliminating its Premier provider network, leaving its members with the choice of becoming exclusive Delta providers, ending their contracts, or joining Delta’s lower-paying preferred provider organization (PPO) program. The dentists who chose the PPO option saw some of their reimbursement fees cut by 10% or more, says Robert Griego, DDS, former chair of the DDA board and past president of the Arizona Dental Association. “Delta angered a lot of dentists in this state.”

Wiand soon felt the impact. “We started having conversations with dentists sensitive about costs who had never been before,” he says. Some clients said they needed price cuts or they’d have to find a less expensive laboratory. “It was very difficult for us to see these dentists who had valued our quality for so many years leave us due to reduced insurance reimbursements,” says Beth Wiand, business and marketing manager at Wiand Dental Laboratory.

But the Wiands quickly responded. They decided to maintain their quality workmanship while also offering more economical product options. “We’re providing what I call our insurance line—dentures, partials, and more—in which we use less expensive materials,” says Tom Wiand. “But we’re keeping the fabrication process the same, so the dentist experiences the quality in the manufacturing end.”

They also hosted an insurance seminar to help dentists maximize reimbursements by providing them with tips on proper coding, how to best complete claims forms, and more. “We’re constantly trying to add value to our relationships with dentists by thinking of ways to help them beyond the products we can offer,” says Beth Wiand. In addition, the Wiands hired a full-time field representative to help ramp up their marketing efforts and to provide client support for larger implant cases, which tend to be fee-for-service.

While the Wiands closed out the year with a 3% reduction in sales compared with 2013, their efforts staved off greater losses. Today, Tom Wiand’s confidence in his business model is tempered with a sense of vulnerability that has intensified his search for continual improvements. “I had felt like we were relatively insulated from insurance-related price pressures because we had a different kind of client,” he says. “But the reality is that I didn’t realize the size of the shift that was occurring.”

Leon Hermanides, CDT, owner of Protea Dental Studio in Redmond, Washington, points out that many dental laboratory owners outside of affected states remain oblivious of the insurance price pressures imposed on their clients, pressures invariably passed on to laboratories. Delta’s reimbursement cuts to dentists in Washington “shook the laboratory industry here,” he says. “Laboratory fees dropped drastically, and it spread like wildfire. It’s something other laboratory owners elsewhere aren’t watching. When I tell them what happened in Washington, they say they were unaware of the issue and the insurance pressures their own dentists are facing.”

Although Delta Dental companies have received most of the recent attention in the dental press for reducing dentists’ reimbursements in recent years (in Washington state, Idaho, and Massachusetts in 2011; New Jersey, Connecticut, and Missouri in 2013; Arizona in 2014; New Hampshire and Vermont in 2015), it’s not the only insurer to do so. Last year, for example, both Anthem Blue Cross and United Concordia informed California dentists of imminent rate cuts. Insurers’ letters to dentists typically have cited market forces as the reason for the reductions.

“All insurers participate in blinded fee surveys that tell carriers how their fees compare with their competitors’,” says Jeff Album, vice president, Public and Government Affairs for Delta Dental of California, New York, Pennsylvania, and Affiliates. “When a plan sees that its fees are among the top three in a market, it starts to lose business to other carriers in that state. Any plan that undertakes a fee reduction is doing so in response to the marketplace.”

More of the Same

In 2013, the American Dental Association (ADA) released a strategic planning analysis on the forces changing dentistry in the U.S. The research was undertaken to help the association “shape a strategy for navigating the challenges ahead and charting a course for the dental profession.” The report noted that in coming years, insurance payers—governments, employers, and individuals—will continue to rein in costs.

Another 2013 study, conducted on behalf of the ADA by the health policy consulting firm Diringer and Associates, illustrates the downstream dynamics of insurance payers’ emphasis on reducing costs. The report entitled Critical Trends Affecting the Future of Dentistry: Assessing the Shifting Landscape said, “Interviews with dental plans showed a trend toward cost containment through smaller provider networks and diminished reimbursement with increased accountability through metrics on utilization, provider profiling and cost controls.”

Among the smaller networks referenced is the exclusive provider organization (EPO), a newcomer on the commercial dental plan scene. For more than a decade, PPOs have dominated the dental plan market, currently accounting for 78% of insurance enrollments. According to the National Association of Dental Plans’ (NADP) 2014 State of the Dental Benefits Market report, which reflects 2013 data, EPOs have garnered 1% of the market. “We started to collect information about EPOs just last year,” says Evelyn Ireland, executive director of NADP. “We only had enough data to report on 10 states. But if we’re beginning to include them in our research, they’re definitely a trend.”

Unlike PPOs, which provide partial payments for patients who choose out-of-network providers, EPOs are closed networks. Except in emergencies, patients are not covered for seeing nonparticipating dentists. An EPO’s smaller and closed provider network enables insurers to save administrative costs and any partial payments for out-of-network coverage, key features that translate into lower premiums for payers. Belonging to an EPO also assures the practitioner a solid patient base, though with a proviso.

“What the insurers are doing,” says Joel Diringer, CEO of Diringer and Associates, “is saying to dentists, ‘We’re going to use you as a very select provider. We’re going to guarantee you a higher volume of patients, but for that we need a discounted fee.’” In addition, insurers will maintain cost-control oversight with data and performance measures.

Another emerging insurance trend that further pressures dental costs is the growing individual insurance market. NADP data show that people purchasing personal dental plans rose from 2% in 2010 to 8.1% in 2013. “That’s significant, and part of it is related to so many baby boomers retiring and getting their own coverage because dental is not part of Medicare,” Ireland says.

She adds that the percentages are sure to climb when the NADP surveys enrollments for 2014 and 2015, with people taking advantage of applying for dental benefits online via the public exchanges and other insurance websites. Aside from the presence of aging baby boomers, another driver of the individual market is the growing number of employers not offering dental benefit plans. For the first time since NADP tracking studies were begun, researchers saw that from 2013 to 2014, the number of companies offering dental benefits declined in all three employer groups: those with 50 or fewer employees (down from 57% to 52%), 51 to 100 employees (declining from 87% to 78%), and 101 and more employees (decreasing from 91% to 89%).

What’s important about the expanding individual insurance market, says health policy analyst Diringer, is that these people tend to be careful buyers. “As out-of-pocket costs increase, so does consumers’ awareness about pricing,” Diringer says. “They’re trying to reduce costs, so they’ll shop around more. They might use social media or call dental offices to compare prices. Everything is transparent these days; nothing is all that opaque.”

For the sake of perspective, it’s important to note that insurance pressures are not the only reason dentists are focused on reducing costs at every opportunity. The ADA strategic analysis also cites wider trends impacting providers. For one, “the percentage of adults with a dental visit in the past year has declined steadily since the early 2000s.” Two key reasons for the slowdown, says the ADA, are the costs of dental care and people’s perceptions that oral health issues are not urgent. In addition, the report notes that dental spending in the U.S. has been flat since 2008. “The shifting patterns of dental care utilization and spending have had a major impact on dentists,” the analysis continues. “Average net incomes declined considerably beginning in the mid-2000s. They have held steady since 2009, but have not rebounded. Two out of 5 dentists indicate they are not busy enough and can see more patients.”

Laboratory Owners Innovate

Dentists’ pursuit of reduced laboratory fees has prompted laboratory owners to rethink their business models, sometimes with novel results. Hermanides of Protea Dental Studio recalls that the 15% reimbursement cut in Washington state had a nearly immediate effect on dental laboratories. “The first thing that happened was that practice management companies began telling dentists that the best way to combat their reduced fees was to cut their laboratory bills, “ says Hermanides. Because Protea Dental has a strong focus on comprehensive, non-insurance–related restorative cases, Hermanides assumed he would avoid any problems.

“What happened, though, was that absolutely every product was affected; prices for cases in Washington just tumbled,” he says. “I knew we were we in big trouble when a client called to tell me my laboratory bill was more than he’d been compensated for the entire case.” Work slowed at dental laboratories throughout Washington. Hermanides scaled back his entire staff’s hours to part-time, subsequently losing several employees. He also began developing a new product to offer cost-conscious clients.

“My product line included an e.max® crown that I sell for about $315, and I wasn’t going to compromise on the price,” Hermanides says. “So we developed a milled e.max crown with a price point of about $215.” Hermanides outsourced the milling until demand justified adding new technology. When sales of the new crowns hit about 150 units a month, Hermanides purchased a milling machine. “This milled e.max crown currently accounts for 75% of our crown sales,” he says. To further boost his bottom line, Hermanides expanded his client base by marketing to out-of-state dentists. His combined efforts have helped his sales climb to new levels, his staff is now full time, and Protea Dental Studio is again hiring.

When Dave Nakanishi, owner of Nakanishi Dental Laboratory in Bellevue, Washington, first heard from Washington dentists about their lowered reimbursement rates, he recalls that the news was usually followed by the question: What can you do for me? “Sometimes we could help, sometimes we couldn’t, so we did see a migration of clients,” Nakanishi says.

Advanced technology’s advantages—higher production rates, lower labor costs, quicker turnaround times—proved essential for providing dentists with lower-priced products. As an early adopter of CAD/CAM, Nakanishi knew how to adapt the technology to meet his clients’ needs.

“We were lucky in that the technology already was fully mature in my laboratory, so we could gear up quickly and still preserve our bottom line by offering products like monolithic zirconia crowns, laser-sintered copings, or milled gold crowns for a flat fee using lower nobility alloys,” Nakanishi says. Some Washington laboratories that didn’t have any technology summarily cut their prices by 15% to keep their clients. “They just took the hit on the bottom line, which most laboratories really can’t afford to do,” says Nakanishi.

To make sure his lower-priced product line would satisfy his clients, Nakanishi solicited dentists’ opinions. He hosted focus groups during which he presented prototypes of the devices and discussed possible pricing. “I also encouraged the dentists to try some of the new offerings to give us feedback,” Nakanishi says. “We had some specific criteria we were looking for, so we asked them to complete quality-control reports and price-point questionnaires. They really helped to guide us. After testing the prototypes for about 6 months, we rolled out the product line to the rest of our client base.”

Digital technology proved vital to helping Nakanishi and his clients survive the reimbursement squeeze. Higher production and sales of lower-priced devices compensated for decreased sales of his standard product line. “Our bottom line stayed relatively healthy year over year. The technology has really paid dividends,” he says.

Tightening Bonds

While insurance-related challenges have tested dental laboratory owners’ resilience and imagination, they’ve also revealed and nourished a growing network of mutual support.

Four years ago, when Jay Collins purchased Cornerstone Dental Labs in Huntingdon Valley, Pennsylvania, he knew that digital technology was a prerequisite for managing not only current price pressures, but those down the road as well. At the start, he says, “we didn’t have a scrap of digital technology. Today I have four scanners, three 3D printers, three mills, sintering ovens, and more.” (Cornerstone serves 650 dentists in 40 states.)

The technology has proved indispensable, as reimbursement cuts have prompted increasing requests for lower-priced devices. At the same time, Collins’ colleagues at other laboratories have been similarly important in helping him make the best use of that technology.

“Every day I feel that I’ve developed stronger relationships with other laboratories,” he says. “For example, at the end of April of last year, I visited a large dental laboratory with my CAD/CAM manager and others. We spent the day learning about their operation. And the following month, they visited us because we have some things figured out that they’re struggling with.” Collins also often serves as the outsourcing partner for laboratories with no digital technology. “For decades, dental laboratories viewed each other only as competition. But as there are fewer of us each year, we’ve got to stick together.”

In Washington state, Dave Nakanishi also values the tightening bond among dental laboratories. “If my mill or sintering furnace goes down, I have friends in the industry. The laboratory community really has been banding together to fill in the gaps each of us might have, despite the fact that we’re competing for the same dollar. Any time you have a common cause, it brings people together. We’ve always had a close association in Washington. But I don’t think it’s ever been quite as close as it is now—or as needed.”

State Dental Groups Respond

Read about how the Washington State Dental Association and California Dental Association are responding to Delta Dental's actions.